in regards to equilibrium in exchange and production.

An exchange economy is characterised by the number of agents in it, the preferences or utility functions of the agents, the number of goods and the endowments of the agents.
by looking at my notes i gather that in a case where there are only two agents (a,b) and two goods (x,y) an exchange economy can be represented by an "edgeworth box". i understand that general quilibrium occurs when the market clears.

1/ what is general equilibrium and partial equilibrium?
i think partial is the short run equilibrium as at least one factor will be fixed. and genral equilibrium is the long run with all factors being variable. is this correct?

2/ how does the "edgeworth box" work?
i can see two demand curves; one for consumer A convex to "origin A" for good x and y and one on the opposite "origin B" for consumer b for good x and y. i don't understand the where the price line comes from and what is initial endowment nor the contract curve. hence how to determine at which price for each good the market will clear.

if you know any good websites that have in depth discussions please point me in the right direction. thankyou

As for number 2, Wikipedia gives a fairly good summary. Google Edgeworth box.

As for number 1, General vs Partial equilibrium is not so much a question of long run vs short run. Partial equilibrium looks for equilibrium conditions ASSUMING all other markets (or all but one other market) are fixed and in equilibrium. General equilibrium looks at interactions between markets. It looks for simultaneous equilibrium conditions in all markets. So, as one market moves towards an equilibruim condition, it is having an impact on other markets. Adjustments in othermarkets have feedback effects in the market of interest.

Again Wikipedia has a fairly good summary. Google general, partial, equilibrium

your airplace crashes in the pacific ocean. you land on a desert island with one other passenger. A box containing 100 little bags of peanuts also wash up on the island. The peanuts are the only thing to eat.
In this economy with two people, one commodity, and no production, represent the possible allocations in a diagram, and explain why every allocation is pareto efficient. Is every allocation fair?

What is difference between inferior goods and normal goods? Thank you

Explain Bot Explain Bot answered
9 months ago

To represent the possible allocations in a diagram for the given scenario, we can use a simple Edgeworth box. The Edgeworth box represents the possible allocations of resources between two individuals or agents. In this case, we have two individuals (you and the other passenger) and one commodity (peanuts).

Each axis of the Edgeworth box represents the allocation of peanuts to one individual. For example, the x-axis could represent the number of peanuts allocated to you, and the y-axis could represent the number of peanuts allocated to the other passenger.

Since there are only 100 bags of peanuts available, the total allocation of peanuts between you and the other passenger cannot exceed 100 bags. Thus, the feasible allocations lie within the bounded area of the Edgeworth box.

Now, let's discuss why every allocation is Pareto efficient. Pareto efficiency refers to a situation where it is impossible to make one person better off without making someone else worse off.

In this scenario, since peanuts are the only thing to eat, any allocation where both individuals receive some peanuts is considered Pareto efficient. This is because both individuals benefit from having access to food.

However, it is important to note that while every allocation is Pareto efficient, not every allocation may be considered fair. Fairness is often a subjective concept and can vary based on individual beliefs, cultural norms, and societal values.

Moving on to the difference between inferior goods and normal goods:

1. Inferior goods: These are goods for which demand decreases as consumer income increases. In other words, people tend to buy less of an inferior good as they become wealthier. An example of an inferior good could be generic or low-quality products, as consumers may shift to higher-quality alternatives as their income rises.

2. Normal goods: These are goods for which demand increases as consumer income increases. As people have more disposable income, they tend to purchase more of these goods. Examples of normal goods can range from daily essentials like food and clothing to luxury items like cars and vacations.

It's important to note that the distinction between inferior and normal goods is dependent on consumer preferences and income. A good can be normal for one person and inferior for another, depending on their individual circumstances.